By Chris Kuehl, Ph.D., NACM Economist

Short Items of Interest—US Economy

One-Third of Economy Shut Down
There have certainly been recessions in the past. Even the most recent of these (in 2008) was worse in a number of significant ways. This recession is presenting challenges that are unprecedented and for which there has been no way to prepare. The fact that almost every state has engaged in a widespread effort to shut down contact between people who might be infected and people who are vulnerable to that infection has abruptly halted economic activity on a major scale. If there is any sort of silver lining to be seen here, it stems from the fact that shutdowns have been motivated by decree and government order and thus can be lifted the same way. There are efforts underway in Asia and Europe to restart their economies as soon as it has been determined the pandemic has peaked and started to recede. Will the restart be as swift as the shutdown? That will be the major concern.

Job Losses Erase Past Decade's Gains
The real question is when will these lost jobs return. This has been a very strange recession as almost the entire collapse has been attributed to actions taken to deal with the COVID-19 pandemic. The job losses were imposed and just as swiftly as these jobs were lost, they could be gained when and if the restrictions are lifted. The question is not will jobs return, but how many. The betting at this stage is between 85% and 90% of the lost jobs will be regained and likely by the same people who lost them. The key issues will be whether the business itself survived and whether those people who were employed went on to other jobs.

Hidden Costs
Now that there has been a shutdown of normal society for over a month, there are costs appearing that had been anticipated. The number of violent episodes between family members has dramatically escalated. This is straining law enforcement as well as the social welfare system. There have been growing issues in mental health as people have been cut off from one another. The network that people count on has been halted. The fact nobody knows when it reappears has added to the tension.

Short Items of Interest—Global Economy

Political Fallout in Europe
There have been some pretty obvious strains in Europe for some time (Brexit, etc.). The pandemic has accelerated these divisions and it is quite likely to have a far longer-lasting impact than the virus itself. The sense of anger in Italy has become palpable. Even the more moderate leaders are seriously talking about leaving the EU. There is a sense in Italy that it has been abandoned by the northern states when it needed help the most. The bitterness is intensifying with every day that Germany and the others resist the idea of coronabonds.

Migration in the Cross Hairs
As nations try to determine the level of threat, it has become apparent that movement of populations has played a major role. The U.S. saw over 400,000 people entering the country from China as this outbreak developed. The majority were people coming home. The Asian states that had seen a peak are seeing secondary rates of infection as people come home. It is a good bet that movement between nations will be very challenging in the months and years ahead. Those that worry about migration across borders will be even more upset and angry at the situation.

Speed Is of the Essence

The Swiss have set the standard as far as reacting to the economic stress of the pandemic. As with many other nations, the Swiss have offered loans and grants to business so they can survive the shutdown. But unlike many of the other nations, the Swiss have streamlined the process and have been getting money to these companies within a day. The average delay in the U.S. has been at least a week. In Italy, it has been three weeks. For small businesses, the lack of a week of earnings is enough to be fatal.

Is Europe Starting to Follow Asian Pattern?

There are dozens of challenges as far as trying to track the path of the COVID-19 virus. On any given day, one can be exposed to statements of pure doom and expressions of hope. The primary issue since the start of the pandemic has been that nobody really knew how widespread it was. Even today, the estimate is that 85% of those who contract some form of the virus are getting a mild version and remain unaware they were ever infected. This has made identifying its spread very hard. To the extent we know anything it is that the virus has gone through some fairly predictable stages. These stages started in Asia, spread to Europe and then to the U.S. Now they are spreading to the developing world in Latin America, Africa and South Asia.

Analysis: According to the data collected by a variety of international health organizations as well as governments, there has been a pattern that is somewhat similar to that of the seasonal flu. COVID-19 peaks and then it begins to wane. This has been the experience in China, South Korea, Japan, Singapore and other Asian states. The deceleration of the infection rate has depended on how thorough the governments have been as far as isolating the infection. There have been many cases of reintroduction as people from infected regions return home or otherwise travel.

The epicenter of the virus shifted from Asia to Europe roughly a month ago. Suddenly, the crisis was engulfing Italy, Spain and other states in the EU. That peak now seems to have been a week ago and the numbers are starting to slowly improve. There have been countries that have been confident enough to reduce or remove the strictest restrictions (Austria was the first). It is still very early at this stage and the Europeans are still dealing with tens of thousands of infections and deaths, but the rates are coming down. Does this mean the U.S. will have a similar experience in the next week or two? Markets are rallying on the news that Europe may have started to get a handle on the outbreak.

There are some differences between the U.S. and the other nations that might have an impact. The first is that the response was far slower in the U.S. than in countries that seem to have turned the corner. South Korea, Germany and the Netherlands have been held up as examples of swift reaction, while the U.S. has been in the same category as Italy and Spain where the restrictions were implemented late and the population has been resistant. The U.S. is also way behind as far as testing—lower than even Italy and behind every other modern nation. On the other hand, the treatment has been better than in many countries.

Preparing a Return to Normal

There has to be a return to "normal." The global economy is not able to withstand the pandemic shutdown much longer. There are already millions out of work and tens of thousands of businesses that have been forced to close; many will be not be able to reopen. That there has to be an end to the economic shutdown is certain—what is not so certain is how. The Europeans are now in the process of developing that strategy. Plans have been outlined in France, Spain, Belgium, Austria and several others. There are not a lot of specifics at this point, but all of the ideas thus far have some common approaches.

Analysis: The assumption that has been guiding all this preparation has been that the virus either has peaked or is in the process of doing so. That shifts the emphasis from dealing with those who have been infected to those who might be coming into Europe from elsewhere and re-infecting the population. All of the plans now call for immensely strict border controls and continued restriction when it comes to travel—especially by airplane and from overseas locations. As the 9-11 attacks introduced the world to security screenings and the TSA, so this pandemic will introduce some kind of health check before people are allowed to travel.

The first phase of the reopening process will likely involve retail operations beyond what had been deemed necessary and vital. People will still be urged to keep their distance, but shopping will return on a larger scale. The next phase will be opening schools and other institutions where a modicum of control can be exercised. The school is considered a more controlled environment where hygiene can be observed. Large crowds will likely be limited for a while longer. The restaurant business will be opened, but likely with new rules on cleanliness and patrons will be seated further apart. There may be more access control to avoid crowds.

At the very top of the list is an admonition for people to take personal responsibility. Those who are vulnerable are to self-isolate and as strictly as they can. Those who are feeling even slightly ill are to isolate and seek testing or actual medical care. The rest of us are to do what our mothers tried to teach us—wash our hands and be clean.

Hindsight Is Twenty-Twenty

By most accounts, the next two to three weeks will be the worst the U.S. has yet experienced as far as COVID-19 infections and deaths are concerned. To some degree this is due to the fact there is near 100% awareness in the U.S. In past months, people with a mild version of the virus might have assumed they were just dealing with a cold or flu—now they are more likely to be identified as having the COVID-19 virus. The most vulnerable populations have been exposed and have become seriously affected. The pattern in the U.S. has been similar to that in other nations as far as who has been affected. The vast majority (upwards of 85%) have either proved somewhat immune or have contracted a mild case that has made them sick, but has not been life threatening. Once that vulnerable population has been attacked, the virus begins to find less fertile ground and starts to fade. At least that is the hope.

Analysis: It is not too early to look at the current situation in order to determine what should have been done to better protect the population. There have been plenty of wrong moves. It can only be hoped that these lessons are learned before the next such threat. According to most analysts, the proper reaction consists of three interconnected reactions and all of them swift. Some have taken to refer to this as the "3 I's"—identification, isolation and intervention. The U.S. was woefully unprepared on all three counts, but then again, this was the situation with most of the rest of the world as well.

Several months into this crisis and there is still not enough testing—the U.S. is able to test about 30 to 40 out of every million people (South Korea is testing around 4,000 per million). The U.S. has not even been able to test the two most crucial segments of the population—those in the medical field and those who are considered most at risk. The second step is isolation. The U.S. has been extremely slow to implement even the most basic measures. It was weeks before the order to engage in "social distancing" was issued. By this time, the virus had spread to all 50 states. The polls suggest that some 40% of the population have not complied and have no desire to do so. Most importantly, the vulnerable populations have not been isolated or even identified in many parts of the country. Finally, there is the intervention stage. The U.S. has not been ready at all. There are not enough hospitals or medical personnel and there is a very dangerous shortage of basic equipment.

At this stage, there is little to gain from attacking the poor decisions that left the U.S. so vulnerable. The need is to look at these failures and ensure the mistakes are not made over and over again. The world gets hit by some kind of viral epidemic every year and these outbreaks kill people every year. This time it has been COVID-19. In the past, it has been SARS, MERS, Zika, Swine flu, Avian flu, West Nile, Ebola. Marburg and any of a dozen other strains of deadly flu. There will be more and future response can't be this chaotic.

When Does the US Go Back to Work?

This is not an easily answered question at this stage—there are far too many variables to make much of a prediction. There are, however, some important prerequisites that might serve as guides to timing. First, it must be noted that the vast majority of Americans are still working and the vast majority of businesses are still functioning. There are those who have been deemed essential. They have actually seen substantial increases in business. Then, there are the millions of people who have adapted to the mandate that they work at home. The hardest hit areas are very familiar by this time—anything connected to travel and tourism, restaurants, anything connected to entertainment and crowds, essentially any business that requires or encourages people to be in close proximity and in large numbers.

Analysis: The process of getting the country back to work will have four phases. The first and likely the easiest will be allowing people to return to their office jobs. These will be the easiest to protect as people can continue to practice good hygiene and it is possible to maintain some distance. The second phase will be opening retail operations fully. It has already been demonstrated that people can shop for groceries and other necessities. It isn't a big leap to allowing other stores to reopen as long as that basic hygiene and care continue. The third and fourth phases will be trickier.

To allow situations where people will be crowded together will require three adjustments. The first is that people who are at high risk will have to remain isolated, imposing a personal quarantine. Likewise, people that think they have any kind of illness will have to isolate themselves. The second adjustment will revolve around basic precautions such as personal hygiene. The restaurant will be more likely to open before the concert venue as there will be marginally more control over that hygiene. The third adjustment will be the most difficult of all as it will mean accepting a certain level of risk.

The most optimistic assessments of the virus and its lifespan hold that it will remain in the population for months and months—at least until there are cures available and until there is a readily available vaccine. This will require a level of acceptance on the part of the public. The peak infection period is now upon the U.S. If this is similar to the experiences of other nations, this is the worst it will be. There will be fewer infections and fewer deaths once the peak is reached. But the infections will still take place and there will still be deaths. How many will be judged tolerable? Will people be willing to resume their normal patterns? Some will not have a choice as they will either be ordered back to work or they will have to return as they need the money. Some will quickly resume old patterns as they have been very frustrated by the restrictions. The rest will remain cautious and may shun the return to normalcy for weeks and even months. Much will depend on the messages received from government and the health authorities and how that will be interpreted by the media.

Who Are These People?

I have lived in my house for over 15 years. I work at home a lot under normal circumstances (when I'm not on the road). My office window faces the street, so I have been able to see what goes on in my neighborhood. Over the years, I have made some observations. There were a few people who regularly went for walks with their dogs—maybe 10 or so a day. There were two kids who played outside—the rest shambled out to catch the bus as they blinked blindly at the sun and stood pale and confused by the outdoors. I thought I knew my neighborhood. Not so.

Now it is an unending parade of people walking, running, biking, skateboarding, pushing strollers, dragging dogs, being dragged by dogs. Who are these people? I see kids outside—dozens of them. Watched four of them try to shoot baskets and I am sure the NBA is not going to recruit them. I counted at least 50 attempts and not one basket (it was a slow day for me too!). I hear yard tools all day now—everything from mowers to chain saws. I attacked a long-neglected area that had become really overgrown and filled no less than 16 lawn bags with debris. I have never spoken to the majority of these people before and now we are waving and yelling at one another.

This radical shift in our habits has not been fun, but there have been these little silver linings. Maybe some of us will keep walking and maybe some of those kids will learn what sunshine and fresh air is like.

US Economy vs. Coronavirus

The worst-case scenarios are always extreme for a reason. They are as much a call to action as they are a statement of fact. If something does not happen to alter the current pattern, there will be a miserable outcome. The reality is there is always some action taken—the question is whether it will be enough. The U.S. will need to restart the economy and this will happen before the virus has vanished. How much of a trade-off will be acceptable to governmental authorities and how much will be acceptable to the public?